Non-Banking Financial Corporations (NBFCs) are financial institutions that provide banking services without meeting the legal definition of a bank. NBFCs are regulated by the Reserve Bank of India and include institutions such as housing finance companies, loan companies, investment companies, and mutual benefit companies. Key points covered include the types and major players of NBFCs in India, how they are regulated including rules around accepting deposits, and their role in providing financing alternatives to banks.

1. Non- Banking Financial Corporations

2. Introduction
 A Non-Banking Financial Company (NBFC) is a company
registered under the Companies Act, 1956 and is engaged in
the business of loans and advances, acquisition of
shares/stock/bonds/debentures/securities issued by
Government or local authority or other securities of like
marketable nature, leasing, hire-purchase, insurance
business, chit business but does not include any institution
whose principal business is that of agriculture activity,
industrial activity, sale/purchase/construction of immovable
property.

3. NBFCs and Banks Differentiation
 An NBFC cannot accept demand deposits.
 It is not a part of the payment and settlement system and as
such cannot issue cheques to its customers
 Deposit insurance facility of DICGC is not available for NBFC
depositors unlike in case of banks

4. Registration of NBFC
 In terms of Section 45-IA of the RBI Act, 1934, it is mandatory
that every NBFC should be registered with RBI to commence
or carry on any business of non-banking financial institution
as defined in clause (a) of Section 45 I of the RBI Act, 1934

5. Exemption from Registration
 Certain category of NBFCs which are regulated by other
regulators are exempted from the requirement of registration
with RBI:
– Venture Capital Fund / Merchant Banking companies /
Stock broking companies registered with SEBI
– Insurance Company holding a valid Certificate of
Registration issued by IRDA
– Nidhi companies as notified under Section 620A of the
Companies Act, 1956
– Chit companies as defined in clause (b) of Section 2 of the
Chit Funds Act, 1982 or Housing Finance Companies
regulated by National Housing Bank.

6. Types of NBFCs
 Equipment leasing company
 Hire-purchase company
 Housing Finance company
 Insurance company
 Loan company
 Investment company
 A mutual benefit financial company (Nidhi)
 Residuary Non-Banking Company

7. Major NBFCs in India
 Birla Global Finance
 Cholamandalam Investment & Finance Co. Ltd
 First Leasing Company of India
 LIC Housing Finance
 Sundaram Finance
 CanFin Homes
 Countrywide Finance
 Housing Development Finance Company

8. NBFCs Accepting Deposits
 Only those NBFCs holding a valid Certificate of Registration
with authorisation to accept Public Deposits can accept/hold
public deposits.
 The NBFCs accepting public deposits should have minimum
stipulated Net Owned Fund and comply with the Directions
issued by RBI.

9. Ceiling on Acceptance of Public Deposits
Category of NBFC Ceiling on public deposits
 EL/HP Companies maintaining
CRAR of 15% without credit
rating
 EL/HP Companies with CRAR of
12% and having minimum
investment grade credit rating
1.5 times of NOF or Rs 10
crore whichever is less
4 times of NOF
 LC/IC with CRAR of 15% and
having minimum investment
grade credit rating
1.5 times of NOF

10. Contd…
 The maximum rate of interest a NBFC can offer is fixed by RBI
from time to time.
 The NBFCs are allowed to accept/renew public deposits for a
minimum period of 12 months and maximum period of 60
months.

11. Defaults in Repayment of Deposit
 If an NBFC defaults in repayment of deposit, the depositor
can approach Company Law Board or Consumer Forum or file
a civil suit to recover the deposits.

12. NBFCs Regulations
 The NBFCs are allowed to accept/renew public deposits for a
minimum period of 12 months and maximum period of 60
months. They cannot accept deposits repayable on demand.
 NBFCs cannot offer interest rates higher than the ceiling rate
prescribed by RBI from time to time.
 NBFCs cannot offer gifts/incentives or any other additional
benefit to the depositors.
 The deposits with NBFCs are not insured.

13. Contd…
 The repayment of deposits by NBFCs is not guaranteed by RBI.
 The NBFCs having assets size of Rs. 500 crore and above but not
accepting public deposits are required to submit Quarterly
Return on important financial parameters of the company.
 The NBFC is required to furnish the information in respect of
any change in the composition of its Board of Directors, address
of the company and its Directors and the name/s and official
designations of its principal officers and the name and office
address of its Auditors.

14. Overdue Interest
 Overdue interest is payable to the depositors in case the
company has delayed the repayment of matured deposits.
 Such interest is payable from the date of receipt of such claim by
the company or the date of maturity of the deposit whichever is
later, till the date of actual payment.
 If the depositor has lodged his claim after the date of maturity,
the company would be liable to pay interest for the period from
the date of claim till the date of repayment. For the period
between the date of maturity and the date of claim it is the
discretion of the company to pay interest.

15. Depositors of NBFCs
 Public deposits are unsecured.
 A proper deposit receipt which should, besides the name of
the depositor/s state the date of deposit, the amount in
words and figures, rate of interest payable and the date of
maturity should be insisted. The receipt shall be duly signed
by an officer authorised by the company in that behalf.
 The Reserve Bank of India does not accept any responsibility
or guarantee about the present position as to the financial
soundness of the company or for the correctness of any of
the statements or representations made or opinions
expressed by the company and for repayment of
deposits/discharge of the liabilities by the company.

16. Role of Official Liquidator
 The liquidator performs duties of winding up.
 Becomes custodian of the property of the company and runs
the day-to-day affairs of the company.
 Draw up a statement of affairs of the company in prescribed
form containing particulars of assets of the company, its debts
and liabilities, names/residences/occupations of its creditors,
the debts due to the company and such other information as
may be prescribed.
 The liquidator realizes the assets of the company and arranges
to repay the creditors according to the scheme approved by
the court.
 Publishes in the newspaper inviting claims from
depositors/investors in compliance with court orders.

17. Owned Fund and Net Owned Fund
 Owned Fund means aggregate of the paid-up equity capital and
free reserves as disclosed in the latest balance sheet of the
company after deducting therefrom accumulated balance of loss,
deferred revenue expenditure and other intangible assets.
 The amount of investments of such company in shares of its
subsidiaries, companies in the same group and all other NBFCs
and the book value of debentures, bonds, outstanding loans and
advances made to and deposits with subsidiaries and companies
in the same group is arrived at. The amount thus calculated, to
the extent it exceeds 10% of the owned fund, is reduced from the
amount of owned fund to arrive at Net Owned Fund.

18. Responsibilities
 Audited balance sheet of each financial year and an audited
profit and loss account in respect of that year as passed in the
general meeting together with a copy of the report of the
Board of Directors and a copy of the report and the notes on
accounts furnished by its Auditors.

19. Responsibilities
 Statutory Annual Return on deposits - NBS 1;
 Certificate from the Auditors that the company is in a position
to repay the deposits as and when the claims arise;
 Quarterly Return on liquid assets;

20. Responsibilities
 Half-yearly Return on prudential norms;
 Half-yearly ALM Returns by companies having public deposits
of Rs. 20 crore and above or with assets of Rs. 100 crore and
above irrespective of the size of deposits

21. Responsibilities
 Monthly return on exposure to capital market by companies
having public deposits of Rs. 50 crore and above; and
 A copy of the Credit Rating obtained once a year along with
one of the Half-yearly Returns on prudential norms.

22. Prepayment of Public Deposits
 NBFCs cannot grant any loan against a public deposit or make
premature repayment of a public deposit within a period of
three months (lock-in period) from the date of its acceptance.
 A NBFC subject to above provisions, if it is not a problem
company, may permit after the lock–in period premature
repayment of a public deposit at its sole discretion, at the
rate of interest prescribed by the company.

23. Prepayment of Public Deposits
 A problem NBFC is prohibited from making premature
repayment of any deposits or granting any loan against public
deposits/deposits, as the case may be.
 The prohibition shall not, however, apply in the case of death
of depositor or repayment of tiny deposits i.e. up to Rs.
10000/- subject to lock in period of 3 months in the latter
case.

24. Maintenance of Liquid Asset
 The minimum level of liquid asset to be maintained by NBFCs
is 15 per cent of public deposits outstanding as on the last
working day of the second preceding quarter.
 Of the 15%, NBFCs are required to invest not less than ten
percent in approved securities and the remaining 5% can be
in unencumbered term deposits with any scheduled
commercial bank.

25. Residuary Non-Banking Company (RNBC)
 Residuary Non-Banking Company is a class of NBFC which is a
company and has as its principal business the receiving of
deposits, under any scheme or arrangement or in any other
manner and not being Investment, Leasing, Hire-Purchase,
Loan Company.
 These companies are required to maintain investments as per
directions of RBI, in addition to liquid assets.

26. Deposits by RNBCs
 There is no ceiling on raising of deposits by RNBCs but every
RNBC has to ensure that the amounts deposited and
investments made by the company are not less that the
aggregate amount of liabilities to the depositors.
 Such companies are required to invest in a portfolio
comprising of highly liquid and secured instruments viz.
Central/State Government securities, fixed deposit of
scheduled commercial banks (SCB), Certificate of deposits of
SCB/FIs, units of Mutual Funds, etc.

27. Interest rate payable by RNBCs
 The amount payable by a residuary non-banking company in
respect of deposits received shall not be less than the amount
calculated at the rate of 5% (to be compounded annually) on
the amount deposited in lump sum or at monthly or longer
intervals; and at the rate of 3.5% (to be compounded
annually) on the amount deposited under daily deposit
scheme.
 Further, a RNBC can accept deposits for a minimum period of
12 months and maximum period of 84 months from the date
of receipt of such deposit.
 They cannot accept deposits repayable on demand.

28. Major NBFCs in India
 Birla Global Finance
 Cholamandalam Investment & Finance Co. Ltd
 First Leasing Company of India
 LIC Housing Finance
 Sundaram Finance
 CanFin Homes
 Countrywide Finance
 Housing Development Finance

29. RBI Regulations on Banking Stakes in NBFCs
 Foreign banks operating in India and Local banks will not be
permitted to own more than 10% of deposit taking finance
company.
 The restriction would not apply to investment in housing
finance companies.

30. RBI Regulations on Banking Stakes in NBFCs
 Foreigners are eager to enter India’s tightly regulated
financial sector to benefit from rapid growth in consumer and
business lending, but RBI is wary of opening up the sector.
 With some exceptions banks can typically invest in a finance
company, either deposit taking or non deposit taking, only
upto 10 percent of the capital funds.
 The combined exposure in all finance companies can go up to
40% of the capital funds.

31. Thank You